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Intel's Healthy Outlook

Health-care initiatives will be a big part of the company's future.

A quote from Intel(NASDAQ:INTC) chairman Craig Barrett has stuck with me since I read it two years ago in a magazine: "The dimensions that we operate at today in building transistors are precisely the dimensions of DNA and proteins. So if I just let my imagination run wild for a minute, what I'm really interested in doing is bringing the economics and accuracy of what we do . to the health sciences."

Intel and other semiconductor companies such as Advanced Micro Devices(NYSE:AMD) deliver a smaller product every 18 to 24 months -- one that performs with twice the efficiency of the previous generation's device, for about half the price. Any way you slice it, this is an impressive accomplishment. And if there ever were an industry in need of a fundamental adjustment to its underlying economic structure, it's health care. Just imagine the possibilities if health care not only got dramatically better every year, but also became less expensive.

That's exactly what Intel wants to do, and its long-term vision of focusing on the health sciences is one of the primary reasons why I'm bullish on the company. Yesterday, as fellow fool Tim Beyers noted, Intel just released samples of its latest chip, the Penryn. It's manufactured with a 45-nanometer process, and for those of you counting at home, 45 nanometers is about half the size of DNA and proteins.

While these new chips are not yet ready to be implanted in the body, nor sophisticated enough to detect unique proteins (such as those often associated with heart disease), Intel is making progress in this area. It's even done some preliminary work with privately held nanotech firm Nanosys, linking disease-detecting nanowires to computer chips.

In the meantime, Intel is busily making progress toward Barrett's goal of bringing the economics of the semiconductor industry to the health sciences. I've written before about how I see Intel's WiMAX initiative affecting the health care industry. But today's Wall Street Journal featured an article adding a new, more immediate piece to this emerging health-care puzzle.

The article reports that next week, Intel, Wal-Mart(NYSE:WMT), and British Petroleum(NYSE:BP) will disclose a plan to provide digital health records to their employees. The resulting information will be stored in massive data warehouses, linking hospitals, pharmacies, and doctors.

Such a system is expected to lower health-care costs by allowing doctors to prescribe better treatments with fewer errors. It will also provide patients with access to information to help them better manage their own health.

To understand the benefit of digital health care from the business side of things alone, bear in mind that Intel expects to spend almost $1 billion on health care this year. That's almost one-fifth of its annual R&D budget. Even if Intel can squeeze out marginal savings on its annual health-care bill, that could save the company millions of dollars and materially affect its bottom line.

In another side benefit for Intel, the new initiative might also help the company sell more chips to the hospitals and pharmacies using giant servers and hand-held computers linked to the new system. Such sales, however, are mere peanuts to Intel's real, long-term business opportunity: capitalizing on a fundamental shift away from treating disease after it has occurred, toward preventing it before it ever happens.

As I imagine it, Intel will get hospitals and doctors to begin storing information digitally. Next, it will link doctors and health-care providers through its growing WiMAX initiative, letting them conveniently share even more and different kinds of medical information. Ultimately, even patients will be brought into the equation, when Intel begins placing computer chips into medical devices inside our bodies, allowing us and our doctors to monitor our health on an almost continual basis.

Unlikely, you say? Perhaps. But I bet if you told people just 25 years ago that heart transplants would become commonplace, or that more than a million children would be conceived in test tubes, they would have called you crazy. I, for one, believe a far more efficient -- and less expensive -- health care system will eventually come to pass, and I believe that Intel will be a big part of helping make the transition. The company remains at the forefront of understanding how digital information, in combination with massive networks of sensors and wirelessly linked computers, will transform our economy.